Gen Z drives NYC apartment vacancy rate to record low of 1.4%

More than four years into the pandemic, the verdict is in: Generation Z loves New York life. And that’s tough news for renters.

The pandemic has driven old and young generations away from central business districts. With the promise of remote work and fewer options for accessing restaurants, entertainment and other commercial spaces, 2 million Americans fled large urban counties between 2021 and 2022, according to a study by the Economic Innovation Group.

But some millennials and even more Generation Z have bucked that trend and returned to America’s largest cities, leading to New York City’s lowest vacancy rate since 1968, according to data released by the city on Thursday. The share of vacant and available rental properties plummeted to 1.4% in 2023, making it the worst housing crisis in Gotham in 50 years.

According to Census Bureau data, between 2021 and 2022, more than 42% of people who moved to New York City were Generation Z and 39% were Millennials. Additionally, major metro areas overall, including New York, are experiencing population losses among all generations, with Gen Z being the big exception, a report from Today’s Homeowner shows.

“Younger generations certainly make up a significant portion of those returning to the city for its social, cultural and convenience appeal,” says Jason Bordainick, co-founder and managing partner of New York-based Hudson Valley Property Group. Fortune. “Whether working in the office or remotely, the allure of urban life, especially in Manhattan, remains strong.”

To put things in perspective, real estate experts believe a “healthy” or normal vacancy rate is between 5% and 10%. Higher vacancy rates tend to benefit tenants more than landlords. When vacancy rates are higher, it’s easier for people to find apartments, but that means landlords have to woo tenants with lower rents or other incentives.

The release of the latest vacancy data has alarmed New York leaders, many of whom are calling for more housing, particularly affordable housing.

“The data is clear: The demand to live in our city far exceeds our ability to build housing,” New York Mayor Eric Adams said in a statement. “New Yorkers need our help, and they need it now.”

Lower vacancy rates mean even higher rental costs

With a vacancy rate as low as New York City’s, it’s no surprise that rental costs are also skyrocketing. According to RentCafe, the average rent for a 700-square-foot apartment in New York City is more than $4,700, and only 1% of apartments cost less than $2,000 per month. By comparison, the average rent for the entire United States is just $1,700. The lack of housing supply only exacerbates rental costs, experts agree.

“The biggest underlying factors that New York has always struggled with in terms of real estate production are the high cost of land and our extremely long development cycle,” says Danielle Ash, a New York-based real estate lawyer at Adler & Stachenfeld. Fortune. “We have a complex regulatory landscape that makes it difficult for developers to build quickly and efficiently, so the only way to spur development is a relaxation of those restrictions, a faster pace of approvals and/or providing incentives to cover costs financial of each work project.”

Low vacancy rates, high rent prices, and few options for affordable housing have only exacerbated the city’s homelessness problem. There has been a “massive influx of migrants desperate for housing that demands the city’s resources,” Ash says. Overall, the city needs hundreds of thousands of additional housing units to fill the housing shortage. In September 2023, Adams unveiled an overhaul of New York’s housing system that could make way for up to 100,000 new homes over the next 15 years.

But city programs aside, it’s not that attractive for developers to build completely new housing in New York due to high costs and strict regulations.

“When it comes to creating more housing, developers need financial incentives due to the exorbitant costs associated with building in New York,” says YuhTyng Patka, another New York-based real estate lawyer at Adler & Stachenfeld Fortune. “New York is a highly regulated market and this leads to high costs for owners and developers.”

In addition to building more housing, rent control is also critical for people looking for affordable options. Although many apartments in New York have income-adjusted rents, this is not enough to make living in the city accessible to everyone.

“The current situation highlights the urgent need for a reevaluation of recent rent controls and regulations,” says Bordainick. “Some of these measures have inadvertently discouraged investment in housing, exacerbating the shortage. It is imperative that we re-evaluate policies to ensure we are taking full advantage of the private market to provide greater capital investment in real estate.”

Even with rents as high as in New York and increasing competition just to find a housing unit, the city remains a promising place, even if it is, in many ways, very different from living in other metropolitan areas in the country.

“New York has been and always will be a destination city for dreamers,” Patka says. “New York will continue to have strong demand for housing for the foreseeable future, [but] the lack of affordable housing [could] it drives away the very talent that New York attracts, which makes it such a special city.”

Sign up for the CFO Daily newsletter to stay up-to-date on the trends, issues and executives shaping corporate finance. Sign up for free.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *